Many of us love the idea of a place in the sun. And despite surveys regularly claiming that Bulgaria, Romania or Estonia are the place to be, it’s Spain where most Brits still opt for a holiday home.
Thanks to Spain’s popularity and easy access, for many there has been the added bonus of being able to rent out the property to friends or holidaymakers and make some spare cash.
But a large number of Britons who let properties have been omitting to tell the Spanish taxman and, after years of turning a blind eye, the authorities are now on the hunt for extra revenue.
A bill to catch foreigners avoiding tax went before the Spanish parliament early this month and even before new legislation comes in, the crackdown has begun.
Having latched on to the opportunity to make some cash from the half-a-million Brits with homes in Spain, the taxman has started hatching cunning plans to snare dodgers.
The authorities have begun searching rental agents’ listings, scanning small adverts and talking to local businessmen and hoteliers to find out who is renting out properties and comparing their findings to people who have registered for tax.
And thanks to the internet, the taxman’s task has become a lot easier and a lot more lucrative, with holiday rental sites providing rich pickings.
Britons who own Spanish homes but are non-resident in the country should pay two sets of annual taxes.
There is a wealth tax, based on a property’s value, and levied on a sliding scale â€“ generally in tranches of e170 and starting at 0.2%.
In addition, there is a notional annual income tax that should be paid even if a property is not rented out, which is based on a percentage of rateable value.
Frank Porral, a Madrid tax specialist for Rastrollo Porral Abogados, says most areas have set the level of this tax at 1.1% of the rateable value, with the taxpayer charged 25% of that figure.
If a property is rented out, a further tax of 25% on actual income should be paid, which can be offset against the notional tax, with income declared within 30 days of the rental period.
While this may sound like an impenetrable maze of confusion, Mr Porral says in fact there is one simple form that covers all the taxes, but unfortunately most Britons are unaware of its existence and it only comes in Spanish.
He said: ‘The problem is the majority of people rent out properties through third parties and don’t realise that their information about rental income can end up in the hands of the tax authorities.
‘If the agent then doesn’t inform them, then they can expect a letter from the taxman telling them to pay up and imposing a penalty.’
‘The Spanish authorities should help people though and print the simple form in different languages. People could even file it on the internet, if only they could understand what they were filling in.’
As part of the tax-drive the Spanish authorities have started targeting letting agents and firms that sell apartments off-plan claiming guaranteed rental income.
British residents renting out properties in Spain should also be paying tax on income to the British taxman and with the Spanish crackdown starting, there is the possibility dodgers may be reported to HM Revenue & Customs too.
A tax treaty exists between Spain and England, which means people should not pay double tax, so the 25% income tax in Spain could be offset against a higher-rate payers tax in Britain.
Simon Rylatt, tax specialist at British firm Boodle Hatfield, said: ‘If you are subject to UK income tax and capital gains tax then any income should be declared on your UK tax return.
‘In principle, if you don’t do this then the Revenue can impose penalties, interest and back tax. It is always safer to disclose everything.’
Source: Simon Lambert, This is Money